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Alcohol Taxation

This is a writeup of a shallow investigation, a brief look at an area that we use to decide how to prioritize further research.

In a nutshell

What is the problem? The Centers for Disease Control and Prevention reports that excessive drinking causes tens of thousands of deaths and costs society hundreds of billions of dollars every year in the United States.

What are possible interventions? We focus on alcohol excise taxes in this investigation. The evidence suggests that alcohol consumption is sensitive to price changes, and so alcohol excise taxes are likely to decrease consumption and related social costs. In general, the value of taxes on alcohol has eroded in the past few decades. However, some state-wide campaigns to raise alcohol taxes have been successful in recent years. A funder could support a variety of research or advocacy efforts at the state or federal level to encourage alcohol tax increases.

Who else is working on it? A number of organizations support work related to alcohol abuse prevention and treatment, but our understanding is that few focus on alcohol tax policy, and we are not aware of any major active funders in the area. Some research is being conducted by the US government and other institutions.

What is the problem?

Excessive drinking has been linked to significant costs to society, including increased liver disease, reckless driving, lost productivity, unsafe sex and STIs, and violent crime.1 Although the exact social cost is uncertain, the Centers for Disease Control and Prevention (CDC) reports that alcohol causes around 88,000 deaths (10% of all deaths among working-age adults) and costs the economy around $224 billion per year in the US.2

Binge drinking (defined as having four or more drinks in one session for women, and five or more for men) is by far the most common and socially harmful form of excessive alcohol consumption in the US.3 However, only a small fraction of binge-drinkers would be classified as “alcohol dependent.”4 Interventions that target binge-drinkers, not just people who suffer from alcohol dependence, may help substantially reduce social harms from excessive drinking.

What are possible interventions?

We began investigating alcohol tax policy after hearing from Mark Kleiman and Phil Cook that they found the research on the impact of alcohol taxes promising.5 In particular, Kleiman claimed that increasing alcohol taxes is likely one of the most effective ways to reduce crime.6

We have focused primarily on alcohol tax policy, which we see as having several advantages as an approach to reducing excessive drinking:

We start with an assumption that raising prices will reduce consumption.

The taxes would be relatively easy to implement and enforce, and governments are incentivized to enforce the law in order to collect revenue. 7

There has been extensive research on the effects of alcohol excise taxes on harms from alcohol, which we discuss below.

We are aware of other potential interventions, but have not investigated them. These include:

Supporting the implementation of social host ordinances. These ordinances render adults criminally and/or financially liable for underage drinking on their property.8

Further restricting when and where individuals are able to purchase alcohol.9

Imposing marketing restrictions on alcohol companies, especially for marketing aimed at young people.10

Increasing the price of alcohol by restricting “happy hours” and other discounts.11

“Swift and certain” sanctions (mild but almost immediate punishment for alcohol abuse) for people on probation for alcohol-related crimes.12

Stricter enforcement of current laws and regulations, such as the minimum drinking age and driving under the influence laws.13

Alcohol taxation

The tax rate of alcohol in inflation-adjusted terms has decayed significantly in recent years.15 Federal alcohol taxes have not been raised since 1991, and many states have kept alcohol taxes level for decades.16 The experts we spoke with suggested that increasing alcohol taxes can reduce consumption and bring alcohol’s private costs more in line with its social costs.17 Heavy drinkers would bear most of the cost of the tax, and contribute most to raising revenue.18

The Open Philanthropy Project commissioned David Roodman to conduct a replication review of the existing literature to assess the evidence about the likely humanitarian impacts of raising alcohol taxes. He summarizes the large existing literature and estimates that a 10% increase in the price of alcohol would lead to roughly a 5% reduction in the amount of alcohol consumed.19 The best evidence also seems to indicate that higher alcohol prices cause a substantial decrease in alcohol-caused death (particularly due to cirrhosis).20 We have less information about possible tax-induced reductions in violence and traffic deaths.21 Overall, Roodman’s review estimates that a 10% tax-induced price hike in the US would reduce the number of alcohol-caused deaths by 9-25%, which would amount to 2,000-6,000 fewer deaths per year.22 Using the more expansive CDC definition of alcohol-caused deaths and assuming that alcohol tax increases would have the same proportional effect on them, a 10% price increase would lead to 8,000-22,000 fewer deaths per year in the U.S.23 However, our impression is that a 10% increase in prices is significantly larger than recent state alcohol tax increases, which have raised prices by more like 3%.24

What has the track record of past advocacy efforts been?

David Jernigan reports that reform advocates attempt to increase alcohol taxes in 20-30 states per year, of which the vast majority fail.25

At least two states (Illinois and Maryland) have recently raised alcohol taxes, and the Maryland increase included a public health (not just a revenue-raising) rationale; it combined a public health message with a coalition of 1,200 groups and won a sales tax increase of three percent, or roughly five cents per drink, which amounted to a $75 million annual increase in state revenues.26 We do not know how feasible it would be to replicate the Maryland tax increase in other states.

A consideration in favor of state (rather than federal) campaigns is the possibility that the success of several campaigns could create enough momentum to prompt changes in other states or at the federal level. A similar process occurred after several states first altered their tobacco tax policies in response to an increased understanding of the dangers of smoking.27

Who else is working on this?

Our understanding is that alcohol policy research and advocacy has experienced a decline in private funding and there is little support for alcohol policy reform from large foundations today.28

A number of organizations, such as Mothers Against Drunk Driving, work on alcohol policy.29 These organizations represent a strong alcohol abuse prevention and treatment community. However, our impression is that most concentrate their efforts on scientific research, alcohol addiction, abuse treatment, and decreasing drunk driving, rather than optimal alcohol tax policy.30

We are aware of only a couple small exceptions:

The Center on Alcohol Marketing and Youth (CAMY) offers research and advocacy training relating to alcohol tax policy increases.31

The CDC funds a few million dollars’ worth of research and advocacy on alcohol policy each year, including supporting CAMY’s work on alcohol tax policy.32

Our process

We initially decided to investigate this issue because Mark Kleiman, one of our criminal justice reform grantees, told us that excessive alcohol consumption was the most important public policy issue he knew of with no major advocate.34 While Kleiman was primarily focused on the impact of alcohol on crime, the bulk of our research has been on the public health aspects of alcohol consumption.

We’ve spoken to roughly half a dozen individuals in our exploration of this issue to date. Public notes are available from our conversations with:

“Excessive drinking is responsible for 88,000 deaths in the US each year, including 1 in 10 deaths among working-¬age adults. These deaths result in over 2.5 million years of potential life lost (YPLLs), shortening the lives of those who’ve died by an average of 30 years. Further, excessive drinking cost the US economy $224 billion in 2006, or $1.90 a drink. These costs were largely due to lost productivity, health care expenses, and criminal justice costs. As a result, about $2 in $5 of these costs were paid by government.” Our non-verbatim summary of a conversation with the CDC’s Alcohol Program, September 5, 2014.

“Binge drinking, defined as 4 or more drinks on an occasion by women or 5 or more drinks on an occasion by men, is responsible for:

Three-quarters of the total economic cost of excessive drinking in the US

Half of the deaths due to excessive drinking, and

Two-thirds of the years of life lost due to excessive drinking

Binge drinking is by far the most common pattern or excessive drinking in the US. Roughly 90% of adult excessive drinkers binge drink, and about 90% of the alcohol consumed by underage youth is done while binge drinking. Furthermore, contrary to popular opinion, most binge drinkers are not alcohol dependent or alcoholics. There are other categories of excessive drinkers in addition to binge drinkers. These include the following:

Underage drinkers (i.e., youth under age 21 years who consume alcohol)

Pregnant drinkers

Individuals who report high weekly alcohol consumption (8 or more drinks a week for women or 15 or more drinks a week for men), with or without binge drinking.”

“Although about one-third of the US population does not drink, alcohol consumption has social costs that affect even non-drinkers (e.g., accidents, illness, lost productivity, child abuse, etc.). It is generally agreed that current federal and state alcohol taxes are too low to cover these social costs, though the exact amount of these social costs is uncertain (a variety of metrics have produced different estimates).” Our non-verbatim summary of a conversation with Phil Cook, July 29, 2014.

7. “Policy strategies that work at the population level such as reducing availability, raising taxes, and restricting alcohol industry marketing not only reduce excessive drinking but also play a role in shifting cultural norms. We learned from tobacco that policy interventions played a major role in making tobacco less attractive and acceptable to young people. Interventions affecting price and availability have similar impacts when properly enforced. However, tax increases are typically easier to enforce, partly because the government has an incentive to collect taxes and have a structure in place for collecting them.” Our non-verbatim summary of a conversation with James Mosher, August 12, 2014.

“Restrictions on the availability of alcohol are effective. This can take the form of prohibition or more limited measures such as age limitations and restrictions on permitted hours of sale. When the Brazilian city of Diadema changed the required closing hour for bars from 4am to 11pm, the murder rate fell by nearly 50%. Any change in permitted hours of sale two or more hours in either direction has a measurable effect on alcohol consumption and associated public health impacts. Additionally, the research supporting a minimum drinking age of 21 and the strict enforcement of age restrictions is particularly strong.” Our non-verbatim summary of a conversation with David Jernigan, August 6, 2014.

“Research on the effectiveness of marketing restrictions is not as strong as that on price or availability, partly due to the impracticality of using traditional experimental designs to study the effect of marketing on alcohol consumption. However, it seems likely that marketing affects the drinking decisions of young people and of people in low-income countries where alcohol use has traditionally been lower. Fifteen longitudinal studies of children’s alcohol consumption over time indicate that marketing plays a role in the decision to start drinking and increases the amount consumed.” Our non-verbatim summary of a conversation with David Jernigan, August 6, 2014.

“A particularly effective way to prevent alcohol and drug use among abusers is “swift and certain” sanctions: frequently testing probationers for drugs or alcohol and implementing very short jail sentences or other punishments for failing on any occasion. People who get in trouble with drugs and crime tend to have trouble adjusting their current behavior to their long-term interests, so low-probability, high-severity punishments are not optimal. Swift and certain sanctions—mild but almost immediate—are therefore effective deterrents. The opposition to swift-and-certain-sanctions policies is a lot weaker than the opposition to raising alcohol taxes.” Our non-verbatim summary of a conversation with Mark Kleiman, July 2, 2013.

“Alcohol policy is not a prominent part of the US political agenda, in part because of an overall decline in alcohol consumption in the US from about 2.8 gallons/capita in 1980 to about 2.1 gallons/capita currently. Rates of intoxicated driving have also declined sharply since the 1980s, partially due to the work of Mothers Against Drunk Driving (MADD). Highways have also become safer for a variety of other reasons. There is no coordinated political movement in favor of increasing alcohol regulation or taxes. There is very little financial support for alcohol policy work… MADD did not become involved in broader alcohol control issues. The issues MADD advocated for, especially harsh punishments for drunk drivers, had more public appeal than more abstract issues like optimal taxation.” Our non-verbatim summary of a conversation with Phil Cook, July 29, 2014.

“Tobacco litigation was fundamentally a political strategy that used subpoena power to damage the tobacco industry’s reputation in the public eye… A similar strategy was used to respond to the alcohol industry’s marketing to underage drinkers with products like Four Loko (produced by Phusion Projects). Litigation successfully pressured Anheuser-Busch and Miller Brewing Company to cease production of alcoholic energy drinks in 2009. In 2010, smaller companies such as Phusion Projects were targets of litigation. The state Attorneys General leading this work were Jerry Brown (D-CA), Dough Gansler (D-MD), Steve Rowe (R-ME), and Mark Shurtleff (R-UT). This group put considerable pressure on the alcohol industry but lost momentum because of turnover and a lack of data convincingly showing the role of advertising in targeting youth.” Our non-verbatim summary of a conversation with James Mosher, August 12, 2014.

“The current federal alcohol tax rate was established in 1991. State alcohol taxes vary, but are generally lower than the federal tax. The real value of both state and federal taxes has been eroded by inflation, and the value of the revenue brought in by alcohol taxes has decreased more quickly than have the social costs of alcohol consumption.” Our non-verbatim summary of a conversation with Phil Cook, July 29, 2014.

“The current federal alcohol tax rate was established in 1991. State alcohol taxes vary, but are generally lower than the federal tax. The real value of both state and federal taxes has been eroded by inflation, and the value of the revenue brought in by alcohol taxes has decreased more quickly than have the social costs of alcohol consumption.” Our non-verbatim summary of a conversation with Phil Cook, July 29, 2014.

“The collaborative has modeled the effect of an alcohol tax increase on all fifty states. In the case of Maryland, the model suggested that moderate drinkers (roughly 35% of the population) would see their tax payments increase by $11.83 per person per year. The 40% of people that do not buy alcohol would not see any tax increase. Heavy drinkers would pay the vast majority of the projected $75 million increase in annual revenues.” Our non-verbatim summary of a conversation with David Jernigan, August 6, 2014.

“Overall, in my view, the preponderance of the evidence says that higher prices do correlate with less drinking and lower incidence of problems such as cirrhosis deaths. And, as I elaborate, I see little reason to doubt the obvious explanation: higher prices cause less drinking. A rough rule of thumb is that each 1% increase in alcohol price reduces drinking by 0.5% (Nelson 2013, as discussed below). And, extrapolating from some of the most powerful studies, I estimate an even larger impact on the death rate from alcohol-caused-diseases: 1–3% within months. By extension, a 10% price increase would cut the death rate 9–25%. For the US in 2010 (author’s calculations, based on WHO), this represents 2,000–6,000 averted deaths/year.” Pg 2.

“Most studies find the expected negative correlation between alcohol prices and total drinking. Even Nelson (2013, 2014a), in his skepticism, agrees. I like his publication-bias adjusted elasticity estimates: -0.29 for beer, -0.46 for wine, -0.54 for spirits, -0.49 for total alcohol.” Pg 49.

“Overall, in my view, the preponderance of the evidence says that higher prices do correlate with less drinking and lower incidence of problems such as cirrhosis deaths. And, as I elaborate, I see little reason to doubt the obvious explanation: higher prices cause less drinking. A rough rule of thumb is that each 1% increase in alcohol price reduces drinking by 0.5% (Nelson 2013, as discussed below). And, extrapolating from some of the most powerful studies, I estimate an even larger impact on the death rate from alcohol-caused-diseases: 1–3% within months. By extension, a 10% price increase would cut the death rate 9–25%. For the US in 2010 (author’s calculations, based on WHO), this represents 2,000–6,000 averted deaths/year.” Roodman 2015, Pg 2.

“While some studies of natural experiments in taxation do not find impacts on alcohol-related mortality⎯notably, in Hong Kong and [Denmark]⎯and others detect it in a way that leaves room for doubt⎯in Florida and the US as a whole⎯one observation can explain most of the seeming disagreement. The larger and cleaner the natural experiment, the more apt are studies to detect impacts on drinking…Thus the evidence base taken as a whole is most easily explained by a dose-response story. The bigger the tax change, the greater the statistical power to detect it.” Roodman 2015, Pg 49.

“How much a tax-induced price increase would affect violence and traffic deaths is harder to establish from the available studies. The clearest impacts in the literature have indeed been on the death rate from cirrhosis, in part because drinking is the primary cause, in part because heavy drinkers are presumably most sensitive to price, in part because the impact can be nearly immediate, making for easier statistical detection. (Although cirrhosis is a chronic disease, it is progressive, so that a sudden increase in drinking can speed death among those in whom the disease is most advanced. Seeley 1960.) Impacts on crime, suicides, and risky sexual behavior have been reported, but have not yet been demonstrated through strong natural-experiment–based studies.” Roodman 2015, Pg 2.

“We can link this rather wide range of elasticities, 1–3, to tallies of alcohol-caused deaths, which I calculate at 23,000 in the US and 72,000 in all western industrial countries in 2010 (WHO).38 In the US, raising alcohol prices by 10% would cut the death toll by 9–25% or 2,000–6,000/year.” Roodman 2015, Pg 48.

“This [Maryland] campaign combined a strong public health message with a broad-based statewide coalition. Although the campaign originally sought an increase of ten cents per drink and ended up with a sales tax increase of 3 percent (equivalent to roughly five cents per drink) it was a dramatic success in a state that had not raised its alcohol tax since 1955. Campaigners built a coalition comprising 1,200 groups that supported the reform effort for two and a half years. The support of health care access proponents was particularly vital to the coalition.” Our non-verbatim summary of a conversation with David Jernigan, August 6, 2014.

“This [Maryland] campaign combined a strong public health message with a broad-based statewide coalition. Although the campaign originally sought an increase of ten cents per drink and ended up with a sales tax increase of 3 percent (equivalent to roughly five cents per drink) it was a dramatic success in a state that had not raised its alcohol tax since 1955. Campaigners built a coalition comprising 1,200 groups that supported the reform effort for two and a half years. The support of health care access proponents was particularly vital to the coalition.”

“The campaign in Maryland cost less than $1 million, not including the large amount of time donated to the cause by Professor Jernigan and others, and has produced a $75 million annual increase in state revenues in addition to public health benefits.”

“The CDC funded the creation of a guide on alcohol excise taxes by CAMY which will be published soon, as well as the development of case studies of successful efforts to raise alcohol taxes in Illinois, Maryland, and Massachusetts. (In Massachusetts, the state legislature approved an alcohol tax increase but the measure was overturned at the ballot box.)”

“There is significantly less private interest and funding available for alcohol policy research and advocacy today than in the recent past.”

“The Robert Wood Johnson Foundation launched a national program to reduce underage drinking in 1992. However…it decided to cease funding in the area.”

“The Center on Alcohol Marketing and Youth (CAMY) at the Johns Hopkins Bloomberg School of Public Health was established in 2002 with funding from the Robert Wood Johnson Foundation and Pew Charitable Trusts. In 2008, Pew went through fundamental changes and stopped funding work in this space.”

“CDC – The CDC has a $2.3 million per year line item in the federal budget for alcohol-related work, some of which it does internally and some of which it grants or contracts out.

National Institute on Alcohol Abuse and Alcoholism (NIAAA) – An arm of the NIH devoted to alcohol research. It spends the overwhelming majority of its research dollars on bench science investigating the neurological and biological basis of addiction.

Substance Abuse and Mental Health Services Administration (SAMHSA) – SAMHSA’s Center for Substance Abuse Prevention (CSAP) works to prevent and reduce the abuse of illegal drugs, alcohol, and tobacco. SAMHSA’s work in this area centers on its Drug‐Free Communities (DFC) Support Program.

Sober Truth on Preventing Underage Drinking (STOP) Act – A 2006 bill authorizing $18 million for work on underage drinking. The most that has been appropriated in any single year has been $11 million; the bill’s authorization expired in 2009 but appropriations have continued.”

“Community Anti-Drug Coalitions of America (CADCA) – An umbrella group that represents roughly 3,000 local coalitions working on alcohol and drug policy across the country.

Alcohol Justice – Formerly the Marin Institute, an advocacy group founded by Professor Jernigan, James Mosher, and Michael Sparks in 1987 as one of three major projects funded by the Buck Trust.

US Alcohol Policy Alliance – A nascent effort to build an independent coalition of state level coalitions on alcohol policy.

Mothers Against Drunk Driving (MADD) – MADD maintains a legislative presence in Washington DC and in state capitals, where its number one legislative priority is ignition interlock systems as a means for combatting drunk driving.”

“CAMY does not only work on “marketing” narrowly construed: since the CDC began funding CAMY in 2009, they have also conducted research on, e.g., the impact of state alcohol tax increases. The CDC funded the creation of a guide on alcohol excise taxes by CAMY which will be published soon, as well as the development of case studies of successful efforts to raise alcohol taxes in Illinois, Maryland, and Massachusetts. (In Massachusetts, the state legislature approved an alcohol tax increase but the measure was overturned at the ballot box.) CAMY also delivers training and other services to reform advocates in multiple states. In addition to its reports and other publications, CAMY has headed a collaborative that produced digital tools that model the impacts of alcohol tax increases. These tools address concerns about the effect of tax increases.” Our non-verbatim summary of a conversation with David Jernigan, August 6, 2014.

“The CDC has a $2.3 million per year line item in the federal budget for alcohol-related work, some of which it does internally and some of which it grants or contracts out.”

“The CDC funded the creation of a guide on alcohol excise taxes by CAMY which will be published soon, as well as the development of case studies of successful efforts to raise alcohol taxes in Illinois, Maryland, and Massachusetts.”

“Drug and alcohol policy can have direct impacts on crime rates. Increasing the alcohol tax is a straightforward way to reduce crime and likely one of the most effective crime control policy steps that could be taken. It would require little administrative effort and would have an immediate effect on the homicide rate.”

“Alcohol abuse is the most important public policy issue that Dr. Kleiman can think of that has no major advocate at the moment. While is a strong alcohol abuse prevention and treatment community, part of it has a “temperance” mindset rather than focusing on reducing abuse while allowing moderate use, while another part wants to treat the “disease of alcoholism” as if it were unconnected with normal social drinking patterns.”